On Equilibrium for Overlapping Generations Organizations

16 Pages Posted: 6 Nov 2005

See all articles by Edward C. Prescott

Edward C. Prescott

Arizona State University (ASU) - Economics Department; National Bureau of Economic Research (NBER)

José-Victor Rios-Rull

University of Pennsylvania - Department of Economics; Centre for Economic Policy Research (CEPR)

Abstract

Necessary conditions for equilibrium are that beliefs about the behavior of other agents are rational and individuals maximize. We argue that in stationary OLG environments this implies that any future generation in the same situation as the initial generation must do as well as the initial generation did in that situation. We conclude that the existing equilibrium concepts in the literature do not satisfy this condition. We then propose an alternative equilibrium concept, organizational equilibrium that satisfies this condition. We show that equilibrium exists, it is unique, and it improves over autarky without achieving optimality. Moreover, the equilibrium can be readily found by solving a maximization program.

Suggested Citation

Prescott, Edward C. and Rios-Rull, José-Victor, On Equilibrium for Overlapping Generations Organizations. International Economic Review, Vol. 46, No. 4, pp. 1065-1080, November 2005, Available at SSRN: https://ssrn.com/abstract=825172

Edward C. Prescott (Contact Author)

Arizona State University (ASU) - Economics Department ( email )

Tempe, AZ 85287-3806
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

José-Victor Rios-Rull

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States
215-898-7767 (Phone)
215-573-2057 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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